US Dollar Index Struggles Below 98.00 as Weak Jobs Data Fuels Fed Rate Cut Speculation

The US Dollar Index (DXY) is finding it difficult to hold momentum at the start of the week, trading just under the 98.00 level during Monday’s Asian session. The move comes after last week’s disappointing US labor market data reinforced expectations of a Federal Reserve rate cut in September.

Jobs Report Fuels Rate Cut Bets

Fresh data from the US Bureau of Labor Statistics showed that Nonfarm Payrolls (NFP) rose only 22,000 in August, far below market expectations of 75,000. The July figure was also revised slightly higher to 79,000 but did little to offset the weak August reading. Meanwhile, the US unemployment rate ticked up to 4.3%, in line with forecasts.

Markets reacted quickly, with the CME FedWatch tool showing a 92% probability of a 25-basis-point cut this month, up from 86% a week earlier. Traders are even starting to price in the possibility of a larger 50 bps reduction if economic weakness deepens.

Fed Officials Signal Uncertainty

Despite growing market conviction, Federal Reserve officials remain cautious. Chicago Fed President Austan Goolsbee noted that deteriorating employment conditions often justify rate cuts, but also admitted he was unsure if September is the right moment given that inflation pressures remain elevated.

This uncertainty leaves investors focused on upcoming economic data to gauge whether the Fed will move decisively or adopt a more gradual easing stance.

Political and Geopolitical Factors Add Pressure

Beyond economic data, political headlines are also influencing markets. US President Donald Trump confirmed that European leaders are expected in Washington early this week to discuss ways to de-escalate the Russia-Ukraine conflict. His remarks came after reports of a major Russian air assault on Sunday night, which left investors cautious and encouraged safe-haven flows.

Outlook for DXY

For now, the Dollar Index faces resistance around the 98.00 handle, while the downside remains cushioned by safe-haven demand amid geopolitical tensions. The direction in the coming days will hinge on how investors interpret new inflation and employment data as the Fed’s September meeting approaches.

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